Panama Canal Faces Second Drought-Related Crisis as El Niño Intensifies

The Panama Canal's water levels are facing another challenging year due to drought and reduced rainfall. The canal, which is a critical artery for global energy trade, has already seen daily transit capacity cut from 36 vessels to 34 and will fall further to 32 on September 15. This reduction in capacity is expected to increase competition for reservations and raise the risk of queues, higher auction premiums, and schedule uncertainty.

According to data from the U.S. Energy Information Administration, about 3.2 million barrels per day of crude oil, condensate, and petroleum products moved through the canal during second-quarter 2026. This makes further restrictions consequential for energy trade. The canal's vulnerability to El Niño is well-documented, with a recent study finding that 79% of the 14 lowest-water events since 1965 were associated with El Niño conditions in the preceding year.

The near-term concern is not only reduced rainfall but also increased evaporation due to warmer conditions. The seasonal outlook from NOAA's Climate Prediction Center shows a 75% likelihood that the October-December event could exceed the strength of previous El Niño events in the modern record.